Retirement Accounts for the Self-Employed

There are many self-employed retirement options available. When you are in your twenties you should be saving and planning for your retirement. This is especially true if you are self-employed. Even if you are only considering becoming self-employed, you need to understand the tax rules that you need to follow before you take the plunge. Retirement options vary but you can find the process and the account that is right for you. It is important to carefully consider how much you need to retire in a comfortable manner. When you are self-employed you lose the benefits of employer matching contributions, so you should focus on saving for retirement. Following basic retirement savings rules should help you reach your goals. Since you will not qualify for a 401(k), when you are self-employed, it is important to take your retirement planning seriously.

01

Traditional and Roth IRAs for the Self Employed

Oil Kellett/Taxi/Getty Images

The first account you may consider is a traditional or Roth tax-deductible IRA account. The biggest negative is the contribution limits set on an IRA account. You can set up an IRA at your local bank or through your broker. You will want to choose an account that earns a high rate of return, more than inflation. When choosing between a traditional IRA and a Roth IRA you need to realize that in a traditional account you are not taxed on your contributions, but on what you withdraw. The Roth taxes you on your contributions, which allows you to withdraw your earnings for free. Since you will withdraw more than you contribute, it makes more sense to open a Roth IRA in most instances. This account will likely not be your first option. You should consider the other retirement accounts available to you.

02

SEP Accounts for the Self Employed

Another option is the SEP account. The Simplified Employee Pension plans are offered to small business owners to set up for their employees. However, sole proprietors may contribute for themselves. You do not have to contribute the same amount every year, which allows you flexibility if you have a difficult year. You should speak to a professional if you are interested in this account. There is a contribution limit associated with the account.

03

KEOGH Accounts for the Self Employed

You may also consider setting up a KEOGH account. This account is similar to a 401K. The amount you contribute depends on the plan you sign up for. The amount is set up and you must contribute that amount every year. This will help you to continually contribute to your retirement. There are operating costs associated with this account since you do need an actuary to administer to the plan and your contributions each year. This is a taxed deferred savings plan.

04

Other Retirement Savings Options for the Self Employed

Additionally, you should plan to save for retirement outside of these tools. You may consider investing in stock, real estate, mutual funds or other investment options. It is important to diversify your portfolio. Once you have figured out how much you need to retire on comfortably, you should figure out the amount you need to contribute each month to reach that goal. If you speak to a financial advisor they should be able to help you. As you make more money, you should contribute more to retirement.